Crypto Asset Statement – Uniswap (UNI)

NO SECURITIES REGULATORY AUTHORITY IN CANADA OR ANY OTHER JURISDICTION HAS EXPRESSED AN OPINION ABOUT CRYPTO CONTRACTS OR ANY OF THE CRYPTO ASSETS MADE AVAILABLE THROUGH THE PLATFORM (as hereinafter defined), INCLUDING AN OPINION THAT THE CRYPTO ASSETS ARE NOT THEMSELVES SECURITIES AND/OR DERIVATIVES.  

 

Coinberry is offering Crypto Contracts in reliance on a prospectus exemption contained in the exemptive relief decision Re Coinberry Limited dated August 19th 2021 [link]. The statutory rights of action for damages and the right of rescission in section 130.1 of the Securities Act (Ontario) and similar legislation in the other provinces and territories of Canada would not apply in respect of a misrepresentation in this Crypto Asset Statement or the Statement of Crypto Asset and Crypto Contract Risks. 

 

Together with the Statement of Crypto Asset and Crypto Contract Risks, the provisions of which are incorporated herein, this Crypto Asset Statement, lists certain specified risks associated with Uniswap.  The risks identified in this Crypto Asset Statement and in the Statement of Crypto Asset and Crypto Contract Risks may not be all of the risks related to the Crypto Assets and Crypto Contracts and there may be other additional unknown risks, that may exist.   

 

Background 

Uniswap is an Ethereum-based decentralized exchange (DEX) that seeks to incentivize a global network of users to swap Crypto Assets. As a decentralized Finance protocol, Uniswap leverages multiple Crypto Assets (including its own native Crypto Asset – Uniswap) to provide a service similar to a traditional exchange. The difference is that Uniswap has no one central operator or administrator. Rather than maintaining a central order book where buyers and sellers can place orders, Uniswap instead uses a collection of liquidity pools.  

 

Due diligence 

Coinberry has performed due diligence with respect to Uniswap to satisfy itself as to the viability of offering it on the Platform. Our due diligence included, but was not limited to, a review of the following: 

• Liquidity of the market  

• Total market capitalization 

• Timeline since Crypto Asset inception 

• Crypto Asset available for custody with existing custodians 

• The current developer ecosystem  

• Whether Uniswap has been classified as a security or a derivative by any Canadian jurisdiction or the jurisdiction with which Uniswap has the most significant connection 

 

 

Risks Associated with Investing in Uniswap   

Underlying Value Risk  

Uniswap represents a relatively new form of digital value that is still being digested by society. Its underlying value is driven by its utility as a store of value, means of exchange, and unit of account, and the demand for Uniswap within those use cases. As Uniswap requires users to stake coins in exchange for returns, the supply of Crypto Assets in the platform is key for its survival. As long as there is a demand and supply on the platform, the value of the Crypto Asset remains strong. If these means of valuing Uniswap prove to be fundamentally flawed, then the market may undergo a repricing of Uniswap, which could have an adverse impact on its price. 

 

Regulation of Uniswap   

The regulation of Uniswap continues to evolve in North America and within foreign jurisdictions, which may restrict the use of Uniswap or otherwise impact the demand for Uniswap.   

 

Volatility of Uniswap 

The risks of trading Uniswap are high as the decentralized finance sector is volatile and speculative which can lead to sharp and sudden movements in prices. As with all investments, it is not uncommon for the value of Uniswap to quickly drop when there shift in the demand and supply which will ultimately impact the price.  

 

Loss of “Private Keys”  

The loss or destruction of certain “private keys” (numerical codes required by Coinberry to access its Crypto Assets) could prevent Coinberry from accessing its Uniswap.  Loss of these private keys may be irreversible and could result in the loss of all or substantially all of the Crypto Assets held in trust by Coinberry.  

 

Your Holdings May Become Illiquid  

You may not always be able to liquidate your Uniswap at a desired price. It may become difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in the marketplace, including on Uniswap trading platforms. Unexpected market illiquidity may cause major losses to the holders of Uniswap. The large size of Uniswap that Coinberry may hold increases the risks of illiquidity by both making the Uniswap difficult to liquidate and in liquidating, Coinberry may affect Uniswap’s price significantly.  

 

Susceptible to Error and Loss   

There is no way to prevent all technical glitches and human error. As with all Crypto Asset transactions, Uniswap transfers are irreversible. An improper transfer (whereby Uniswap is accidentally sent to the wrong recipient), whether accidental or resulting from theft, can only be undone by the receiver of the Uniswap agreeing to send the Uniswap back to the original sender in a separate subsequent transaction. Transfers are self-directed by the client. To the extent Coinberry erroneously transfers, whether accidental or otherwise, Uniswap in incorrect amounts or to the wrong recipients, Coinberry may be unable to recover the Uniswap, leading to its loss.  

 

Risks Associated with the Uniswap Network  

Dependence on Uniswap Developers  

While many contributors to Uniswap’s software are employed by companies in the industry, a portion of them are not full-time Uniswap devotees. As a result, there are no contracts or guarantees that they will continue to contribute to Uniswap’s software development.  

 

Disputes on the Development of the Uniswap Network may lead to Delays in the Development of the Network  

There can be disputes between contributors on the best paths forward in building and maintaining Uniswap’s software. Furthermore, the miners supporting the network and companies using it can disagree with the contributors as well, creating greater debate. Therefore, the Uniswap community often iterates slowly upon contentious protocol issues, which many perceive as prudently conservative, while others worry that it inhibits innovation.  

 

Competitors of Uniswap     

To the extent a competitor Uniswap gains popularity and greater market share, the use and price of Uniswap could be negatively impacted, which may adversely affect its price. Similarly, Uniswap and the price of the Uniswap Crypto Asset could be negatively impacted by competition from incumbents. 

 

Possible Increase in Transaction Fees  

Uniswap uses the Ethereum network and therefore is subject to transaction fees, also known as Gas fee. Gas  refers to the unit that measures the amount of computational effort required to execute specific operations on the Ethereum network, which over the years have increased, causing higher transactional fee for other coins that runs on the Ethereum network.  

 

Decrease in Reward  

Uniswap doesn’t have a block reward instead they provide a return on their coins. To attract users to lock their coins, Uniswap offers them a return on their coins, as well as a portion of the fee from the trades. This return is generated when Uniswap supplied the locked funds to protocols which in turn lend the coins out to users.  

 

Risks Associated with Uniswap Trading Platforms 

Regulation of Uniswap Trading Platforms  

Uniswap trading platforms are spot markets in which Uniswap can be exchanged for fiat currencies (CAD, USD, etc.). Coinberry seeks to ensure that the Uniswap trading platforms on which it transacts are reputable, stable, and operating in compliance with applicable laws.  

 

Limited Operating History of Uniswap Trading Platforms  

Given the newness of crypto assets in general, Uniswap trading platforms have a limited operating history. Since 2009 several Crypto Asset trading platforms have been closed or experienced disruptions due to fraud, failure, security breaches or distributed denial of service attacks. In many of these instances, the customers of such trading platforms were not compensated or made whole for the partial or complete loss of funds held at Uniswap trading platforms. The potential for instability of Uniswap trading platforms and the closure or temporary shutdown of exchanges due to fraud, business failure, hackers, distributed denial of service attacks or malware or government-mandated regulation may reduce confidence in Uniswap, which may adversely affect its price. 

 

Hacking of Uniswap Trading Platforms May Have a Negative Impact on Perception of the Security of the Uniswap Protocol  

Trading platforms that adhere to best practices are insured, and most of these have not been hacked, or if they have the loss has been minimal. Although there is ample evidence which indicates that almost all of the economic trading volumes in Uniswap occur on the top ten global trading platforms, many of which are regulated by the New York State Department of Financial Services, carry insurance for their hot wallet assets, such exchanges, or other, smaller, or less reputable exchanges, may get hacked. Uniswap’s price is at risk if a platform is hacked as it can shake consumer confidence for those that do not understand the difference between a weakness in the platform versus a weakness in Uniswap and its protocol.   

 

Different Prices of Uniswap on the Uniswap Trading Platforms 

Most platforms operate as isolated pools of liquidity, and so when demand spikes for a specific platform the market price for Uniswap on that platform can also spike, making it trade at a premium to other platforms. This tendency is common geographically, with Asian platforms frequently trading at a premium to platforms in Europe or America.  

 

Closure of Uniswap Trading Platform(s)  

As a decentralized exchange, Uniswap has been trading on multiple platforms as the scalability increases, with more and more platforms offering the Crypto Asset. In the long run, the Crypto Asset may be impacted if several platforms close due to fraud, failure, or security breaches. 

 

Liquidity Constraints on Uniswap Markets 

While the liquidity and traded volume of Uniswap are continually growing, they are still maturing assets. We may not always be able to acquire or liquidate crypto assets we hold in trust at a desired price. It may become difficult to execute a trade at a specific price when there is a relatively small volume of buy and sell orders in the marketplace, including on the Uniswap trading platform. When transacting in the Crypto Asset markets, Coinberry will be competing for liquidity with other large investors, including speculators, investment funds and institutional investors. Unexpected market illiquidity, and other conditions beyond our control, may cause major losses to the holders of a Crypto Asset, including Uniswap. The large position in Uniswap that we may acquire increases the risks of illiquidity by making our Uniswap difficult to liquidate. In addition, liquidation of significant amounts of Uniswap by Coinberry may impact the overall market price of Uniswap. 

 

Risk of Manipulation on Uniswap Trading Platforms  

Some Uniswap trading platforms have been known to permit and/or report artificially high order volumes and/or trading volumes. Uniswap trading platforms are not required to adopt policies and procedures for the purpose of detecting and preventing manipulative and deceptive trading activities and, in the event that manipulative and deceptive trading activities are detected, Uniswap trading platforms may not have procedures for, or jurisdiction to, sanction or otherwise deter such activities and/or to detect, investigate and prosecute fraud.  

 

Settlement of Transactions on the Uniswap Network  

There is no central clearing house for cash-to-Uniswap transactions. Current practice is for the purchaser of Uniswap to send fiat currency to a bank account designated by the seller, and for the seller to broadcast the transfer of Uniswap to the purchaser’s public Uniswap address upon receipt of the cash. The purchaser and seller monitor the transfer with a transaction identification number that is available immediately upon transfer and is expected to be included in the next block confirmation. When Coinberry purchases Uniswap from a Uniswap trading platform, there is a risk that the Uniswap trading platform will not initiate the transfer on the network upon receipt of cash from Coinberry, or that the bank where the Uniswap trading platform’s account is located will not credit the incoming cash from Coinberry for the account of the Uniswap trading platform.  

 

Risk Statement 

Please make sure to review the Statement of Crypto Asset and Crypto Contract Risks for additional discussion of general risks associated with the Crypto Contracts and Crypto Assets made available on Coinberry. 

 

 

Last Updated August 16,  2021